2. Financial Statements.docx

BALIUAG UNIVERSITY CPA REVIEW FINANCIAL ACCOUNTING PROBLEMS

FAR-2017-02

FINANCIAL STATEMENTS On December 31, 2017, A COMPANY showed the following current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets

500,000 2,500,000 2,000,000 100,000 5,100,000

Cash on hand including customer postdated check of P20,000 and employee IOU of P10,000 Cash in bank per bank statement (outstanding checks on December 31, 2017, P70,000) Total cash Customers’ debit balances, net of customer deposit of P50,000 Allowance for doubtful accounts ( Sale price of goods invoiced to customers at 150% of cost on December 29, 2017 but delivered on January 5, 2018 and excluded from reported inventory Total accounts receivable

130,000 370,000 500,000 1,900,000 150,000) 750,000 2,500,000

1. What is the adjusted cash balance? a. 500,000 b. 470,000 c. 430,000 d. 400,000 2. What is the net realizable value of accounts receivable? a. 1,970,000 b. 1,820,000 c. 1,800,000 d. 1,950,000 3. What is the adjusted inventory? a. 2,000,000 b. 2,375,000 c. 2,500,000 d. 2,750,000 4. What total amount of current assets should be reported? a. 4,900,000 b. 4,830,000 c. 4,780,000 d. 4,630,000 5. B COMPANY reported the following current assets on December 31, 2017: Cash in bank, net of P500,000 bank overdraft in another bank Accounts receivable Notes receivable Note receivable discounted Inventory, including P300,000 expected to be sold in the ordinary course beyond 12 months Financial assets at FVTPL Financial assets at FVTOCI Prepaid expenses, including cash surrender value of P200,000 Deferred tax assets 1

4,000,000 7,500,000 2,000,000 500,000 4,500,000 1,000,000 1,500,000 500,000 2,500,000

Equipment classified as “held for sale”

3,000,000

The accounts receivable included customers’ accounts of P5,000,000, net of customers’ credit balances of P600,000, allowance for doubtful accounts P500,000, and selling price of unsold goods out on consignment at a markup of 50% on cost and excluded from ending inventory P3,000,000. What amount should be presented as total current assets on December 31, 2017? a. 21,900,000 b. 22,400,000 c. 18,900,000 d. 21,600,000 6. C COMPANY provided the following data on December 31, 2017: Cash Financial assets at fair value (including long-term investment of P500,000 in ordinary shares of Ayala Company) Inventories (including goods received on consignment of P200,000) Prepaid expenses (including a deposit of P50,000 made on inventories to be delivered in 18 months) Property, plant and equipment (excluding P300,000 of equipment still in use, but fully depreciated) Goodwill (based on the estimate of the president) Total assets Cash in general checking account Cash in fund to be used to retire bonds in 2017 Cash held to pay value added taxes Total cash

5,000,000 2,000,000 800,000 150,000 10,000,000 1,000,000 18,950,000 3,500,000 1,000,000 500,000 5,000,000

What total amount of current assets should be reported on December 31, 2017? a. 6,250,000 b. 6,200,000 c. 7,200,000 d. 7,250,000 7. D COMPANY provided the following information on December 31, 2017: Accounts payable, net of debit balances of P100,000 in creditors’ accounts Accrued expenses Bonds payable due on December 31, 2018 Discount on bonds payable Deferred tax liability Income tax payable Cash dividend payable Stock dividend payable Note payable – 6%, due March 1, 2018 Note payable – 8%, due October 1, 2018

1,900,000 500,000 3,000,000 200,000 400,000 700,000 800,000 300,000 1,500,000 1,000,000

The 2017 financial statements were issued on March 31, 2018. On March 1, 2018, the 6% note payable was refinanced on a long-term basis. Under the loan agreement for the 8% note payable, the entity has the discretion to refinance the obligation for at least 12 months after December 31, 2017. The deferred tax liability is based on temporary differences that will reverse in 2018. A sinking fund of P3,000,000 was set aside to pay the bonds payable upon maturity. What amount should be reported as total current liabilities on December 31, 2017? a. 8,300,000 b. 9,300,000 c. 9,000,000 d. 5,500,000 8. E COMPANY provided the following account balances and related information on December 31, 2017: Cash and cash equivalents 3,700,000 Accounts receivable 1,500,000 Allowance for doubtful accounts ( 200,000) 2

Inventory Prepaid insurance

2,000,000 300,000 7,300,000

Cash in bank, net of bank overdraft of P300,000 maintained in a separate bank Cash set aside by the Board of Directors for the purchase of a plant site Petty cash Cash withheld from wages for income tax of employees General cash Total cash and cash equivalents

1,000,000 2,000,000 10,000 190,000 500,000 3,700,000

The accounts receivable included past due account in the amount of P100,000. The account is deemed uncollectible and should be written off. The inventory included goods held on consignment amounting to P150,000 and goods of P200,000 purchased and received on December 31, 2017. Neither of these items have been recorded as a purchase. The prepaid insurance included cash surrender value of life insurance of P50,000. What amount should be reported as current assets on December 31, 2017? a. 5,400,000 b. 5,100,000 c. 5,300,000 d. 5,200,000 9. F COMPANY reported that remuneration and other payments made to the chief executive officer during the current year were: Annual salary 2,000,000 Share options and other share based payments 1,000,000 Contributions to the retirement benefit plan 500,000 Reimbursement for travel expenses for business trips 1,200,000 What total amount should be disclosed as “compensation” to key management personnel? a. 3,500,000 b. 4,700,000 c. 3,000,000 d. 2,500,000 The following trial balance of G COMPANY on December 31, 2017 has been adjusted except for income tax expense: Cash 600,000 Accounts receivable, net of allowance of P100,000 1,650,000 Prepaid taxes 300,000 Accounts payable ( 140,000) Share capital ( 500,000) Share premium ( 680,000) Retained earnings ( 630,000) Foreign currency translation adjustment 400,000 Revenue ( 3,600,000 ) Expenses 2,600,000 During 2017, estimated tax payment of P300,000 were charged to prepaid taxes. The entity has not yet recorded income tax expense. There were no differences between financial and taxable income. The rate is 30%. Included in accounts receivable is P500,000 due from a customer. Ordinary terms granted to this customer require payment in equal semiannual installmentsP125,000 every April 1 and October 1. 10. In the December 31, 2017 statement of financial position, what amount should be reported as total current assets? a. 2,000,000 b. 2,200,000 c. 2,300,000 d. 2,250,000 3

11. In the December 31, 2017 statement of financial position, what amount should be reported as total retained earnings? a. 1,680,000 b. 1,200,000 c. 1,330,000 d. 1,630,000 12. During 2017, H COMPANY decided to change from the FIFO method of inventory valuation to the weighted average method. Inventory balances under each method were: FIFO

Average December 31, 2015 December 31, 2016 December 31, 2017

9,000,000 8,000,000 7,000,000

Weighted 8,500,000 8,300,000 6,400,000

Ignoring income tax, what amount should be reported as the effect of this accounting change in the statement of retained earnings for 2017? a. 200,000 decrease b. 200,000 increase c. 300,000 decrease d. 300,000 increase 13. I COMPANY provided the following information for the current year: Income from continuing operations Income from discontinued operations Unrealized gain on financial assets at FVTPL Unrealized gain on financial assets at FVTOCI Unrealized gain on futures contract designated as a cash flow hedge Actuarial loss during the year due to increase in PBO Foreign translation adjustment – debit Loss on credit risk of a financial liability designated at FVTPL Revaluation surplus during the year

5,000,000 1,000,000 2,500,000 1,500,000 500,000 400,000 100,000 200,000 2,000,000

What amount should be reported as comprehensive income for the year? a. 3,300,000 b. 9,300,000 c. 6,000,000 d. 9,500,000 14. J COMPANY had net income of P5,500,000, a positive P500,000 net cumulative effect of a change in accounting policy, a P1,500,000 unrealized loss on available for sale securities, a positive P1,000,000 foreign currency translation adjustment, and a P3,000,000 increase in share capital. What is the comprehensive income? a. 8,500,000 b. 5,000,000 c. 5,500,000 d. 8,000,000 15. K COMPANY provided the following net of tax figures for the current year: Net remeasurement loss on defined benefit plan Unrealized gain on available for sale securities Reclassification adjustment for gain on sale of available for sale securities included in net income Share warrants outstanding Net income

4

300,000 1,500,000 250,000 400,000 7,700,000

What is the comprehensive income for the current year? a. 8,650,000 b. 8,900,000 c. 8,950,000 d. 9,050,000 16. During the current year, L COMPANY reported in the statement of comprehensive income P5,000 in interest revenue, P15,000 equity in associate’s earnings, and P25,000 gain on sale of available for sale securities. The sale of securities increased the current portion of income tax expense by P10,000. What is the total amount of reclassification adjustment of other comprehensive income? a. 5,000 b. 2,500 c. 35,000 d. 15,000 17. M COMPANY provided the following trial balance on December 31, 2016 which has been adjusted except for income tax expense: Cash 600,000 Accounts receivable – net 3,500,000 Cost in excess of billings on long-term contracts 1,600,000 Billings in excess of cost on long term contracts 700,000 Prepaid taxes 450,000 Property, plant and equipment – net 1,510,000 Note payable – noncurrent 1,620,000 Share capital 750,000 Share premium 2,030,000 Retained earnings unappropriated 900,000 Retained earnings restricted for note payable 160,000 Earnings from long-term contracts 6,680,000 Costs and expenses 5,180,000 12,840,000 12,840,000  

The entity used the percentage of completion method to account for the long-term constructions contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within 12 months. During 2017, estimated tax payments of P450,000 were charged to prepaid taxes. The entity has not recorded income tax expense. There were no temporary or permanent differences. The tax rate is 30%.

On December 31, 2017, what amount should be reported as 1. Total retained earnings? 2,110,000 2. Total non-current liabilities? 1,620,000 3. Total current assets? 5,700,000 The relevant accounts and adjusted balances shown below were taken from N COMPANY’s trial balance on December 31, 2017: Cash deposit in banks 300,000 Gold bullion deposited in banks 2,000,000 Trade accounts receivable 1,400,000 Investments in debt instruments 3,000,000 Investments in equity instruments 1,600,000 Investments in equity instruments with significant influence 2,400,000 Prepaid expenses 120,000 Finance lease payable 250,000 Deferred revenue 120,000 Trade payables 650,000 Provision for estimated litigation losses 420,000 Issued debt instrument 1,800,000 Issued equity instrument 2,900,000

5

18. What total amount of financial instrument – assets that are within the scope of IAS 39 and IFRS 9 should N COMPANY report for the year 2017? 6,300,000 19. What total amount of financial instruments – liabilities that are within the scope of IAS 39 and IFRS 9 should N COMPANY report for the year 2016? 2,450,000 O COMPANY has the following financial assets as of December 31, 2017: a. A P300,000 accounts receivable that is not held for trading. b. An P800,000 investment in an equity instrument quoted in an active market that is not held for trading. c. A P500,000 investment in equity instrument that is not held for trading and does not have a quoted price, and whose fair value cannot be reliably measured. d. A P600,000purchased debt security with the objective to hold the asset to collect the contractual cash flows that are solely payment of interest and principal. e. A P700,000 purchased debt security quoted in an active market that O COMPANY plans to hold to maturity. O COMPANY has a business model with the objective of trading the security to make profit for changes in the fair value of debt securities. f. A P400,000 investment in equity instrument that is quoted in an active market. O COMPANY has no intention to sell the investment. g. A P600,000 investment in equity that is held for trading. 20. What amount of financial assets – measured at amortized cost? 900,000 21. What amount of financial asset under the category – investment in equity to profit or loss should be separately reported in the December 31, 2017 statement of financial position? 600,000 22. What amount of financial asset under the category – investment in equity through other comprehensive income should be separately reported in the December 31, 2017 statement of financial position? 1,700,000 23. What amount of financial asset under the category – investment in debt security at fair value should be separately reported in the December 31, 2017 statement of financial position? 700,000

6